Description:

An innovative approach to post-crash credit portfolio management Credit portfolio managers traditionally rely on fundamental research for decisions on issuer selection and sector rotation. Quantitative researchers tend to use more mathematical techniques for pricing models and to quantify credit risk and relative value. The information found here bridges these two approaches. In an intuitive and readable style, this book illustrates how quantitative techniques can help address specific questions facing todays credit managers and risk analysts. A targeted volume in the area of credit, this reliable resource contains some of the most recent and original research in this field, which addresses among other things important questions raised by the credit crisis of 2008-2009. Divided into two comprehensive parts, Quantitative Credit Portfolio Management offers essential insights into understanding the risks of corporate bonds-spread, liquidity, and Treasury yield curve risk-as well as managing corporate bond portfolios. Presents comprehensive coverage of everything from duration time spread and liquidity cost scores to capturing the credit spread premium Written by the number one ranked quantitative research group for four consecutive years by Institutional Investor Provides practical answers to difficult question, including: What diversification guidelines should you adopt to protect portfolios from issuer-specific risk? Are you well-advised to sell securities downgraded below investment grade? Credit portfolio management continues to evolve, but with this book as your guide, you can gain a solid understanding of how to manage complex portfolios under dynamic events.

Spread Decomposition Using an Alternative Measure of Expected Default Losses

High-Yield Spread Decomposition

Applications of Spread Decomposition

Alternative Spread Decomposition Models

Appendix

Empirical versus Nominal Durations of Corporate Bonds

Empirical Duration: Theory and Evidence

Segmentation in Credit Markets

Potential Stale Pricing and Its Effect on Hedge Ratios

Hedge Ratios Following Rating Changes: An Event Study Approach

Using Empirical Duration in Portfolio Management Applications

Managing Corporate Bond Portfolios

Hedging the Market Risk in Pairs Trades

Data and Hedging Simulation Methodology

Analysis of Hedging Results

Appendix: Hedging Pair-Wise Trades with Skill

Positioning along the Credit Curve

Data and Methodology

Empirical Analysis

The 2007-2009 Credit Crisis

Spread Behavior during the Credit Crisis

Applications of DTS

Advantages of DTS in Risk Model Construction

A Framework for Diversification of Issuer Risk

Downgrade Risk before and after the Credit Crisis

Using DTS to Set Position-Size Ratios

Comparing and Combining the Two Approaches to Issuer Limits

How Best to Capture the Spread Premium of Corporate Bonds?

The Credit Spread Premium

Measuring the Credit Spread Premium for the IG Corporate Index

Alternative Corporate Indexes

Capturing Spread Premium: Adopting an Alternative Corporate Benchmark

Risk and Performance of Fallen Angels

Data and Methodology

Performance Dynamics around Rating Events

Fallen Angels as an Asset Class

Obtaining Credit Exposure Using Cash and Synthetic Replication

Cash Credit Replication (TCX)

Synthetic Replication of Cash Indexes

Credit RBIs

References

Index

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